Municipal-bond dealers failing to adequately disclose the risks of debt they handle should expect more disciplinary action, said Malcolm Northam, senior director of member regulation at the Financial Industry Regulatory Authority.
Municipal-bond dealers failing to adequately disclose the risks of debt they handle should expect more disciplinary action, said Malcolm Northam, senior director of member regulation at the Financial Industry Regulatory Authority.
“You can expect to see several actions for failure to provide disclosure to investors,” Northam said today at the Bond Buyer’s National Municipal Bond Summit in Miami Beach, Florida.
Finra, which enforces rules for securities dealers, plans to develop a “report card” on its members’ compliance with disclosure rules, he said.
The U.S. Securities and Exchange Commission has made improving disclosure in the $2.93 trillion municipal-debt market a priority under Chairman Mary Schapiro. SEC rules require dealers to ensure that issuers disclose risks to investors.
In recent years, regulators have found several instances where investors weren’t told of the risks, Peg Henry, deputy general counsel of the Municipal Securities Rulemaking Board, said at the conference. Her organization makes the rules for securities dealers and underwriters that Finra enforces.
Henry cited bonds sold by Main Street Natural Gas Inc. to buy energy contracts for several municipal governments. The bonds’ payments actually depended on Lehman Brothers Holdings Inc. rather than the municipalities. Investors didn’t know that until after Lehman sought bankruptcy in 2008, Henry said.
“They were sold as safe, but investors didn’t know they depended on Lehman’s credit,” Henry said.
--Bloomberg
